Say Buh-bye to High Interest Rates
Getting a higher education shouldn’t necessarily tie you to a high student loan interest rate, but that’s all-too common today. When high interest rates are added to your already costly monthly payments, your debt can go from attainable to unaffordable fast. And no matter what type of student loans you have, they all come with their own interest rates.
Some Student Loan Interest is Inevitable
Interest rates on loans are like your Aunt Millie’s personal questions at Thanksgiving – they’re typically unavoidable, especially if you have a federal loan. However, there’s no cookie-cutter rate for student loan borrowers. Your interest percentage and terms will depend on the following criteria:
- Federal vs. private loan
- Undergraduate or graduate
- Subsidized or unsubsidized
- When you received the loan
To learn more, read our ultimate guide to student loan interest.
Abolish Outrageous Interest Rates with an Accelerated Payment Plan
If you’ve got a ridiculously high interest rate, it can feel like you’re stuck with that rate for the life of the loan. However, you can get a lower rate if you’re able to pay off your loan faster. *If* you’re able to pay more monthly.
Your monthly overall payment will be higher because of the shorter time frame, but the change will save you money in the long run. In short: the less time in the loan period, the lower the interest built up over time. While income-driven repayment plans can help you afford your monthly payments, they will likely lead to more interest you’ll have to pay during the life of the loan.
Federal vs. Private Loan Rates
Federal and private student loans have many differences, including their interest rates. Federal interest rates are set by the government and vary by loan type. Federal loans don’t require a credit check, so you can’t get a low rate by having a good credit score. Meanwhile, private loan interest rates are based on factors such as:
- Credit history
- Credit score
- Borrowing power
- Payment length
The main downside with private student loans is that they can have variable interest rates, while federal student loans taken out after 2005 have fixed interest rates.While federal loans also tend to have lower interest rates than private student loans, it is possible for federal loans to sometimes have double to triple the interest of a private lender, depending on your situation. Thanks, Department of Education. A potential solution for a high federal student aid interest rate is to follow this three-step process:
This plan is ideal for saving money in the long run if you can stick to the payment schedule. The downside is you will lose any income-based repayment options or forbearance offered by the federal government.
MoneySolver can review your current loan status and life circumstances to see if restructuring your loan for a lower interest rate is the right path for you. We’ll review what other options are available to you, so you can pay off student debt in the most efficient and affordable way possible.
You’ll be saying sayonara to those extra percentages – and we promise they won’t be missed.
Undergraduate or Graduate Student Loan Interest Rates
The interest rates for undergraduate federal student loans are lower than the interest rates for federal student loans for graduate students. For federal student loans disbursed between July 2019 and June 2020, undergraduates have a 4.53 percent interest rate. With federal loans from the same time period, graduate students will have a 6.08 percent rate with unsubsidized loans and a 7.08 percent rate with PLUS loans.
When it comes to private student loans, the interest rates vary more by lender than they do by undergraduates vs. graduates. While some companies might have lower rates for undergraduates, others have similar rates for both undergrad students and grad students.
Subsidized Loans or Unsubsidized Loans and Interest
Different types of federal student loans have varying terms when it comes to interest rates. For example, federal direct subsidized and unsubsidized student loans have the same interest rate. However, the terms for the interest have a key difference. Subsidized loans have one major benefit: they don’t accrue interest while you’re in school or during your grace period.
If you have unsubsidized loans, you’ll be responsible for paying any interest that accumulates on the loan while you’re in school or during grace periods. If you don’t pay the interest during those time periods, it’ll be added onto your total loan amount.
How Timing Plays into Your Interest Rate
When you take out your student loans is instrumental in determining what your interest rate will be, particularly for federal student loans. Federal student loan rates vary depending on the disbursement school year, based on the 10-year Treasury note yield. So, if interest rates are generally higher, federal education loan interest rates will be higher as well.
With rates ranging by school year, you can see noticeable changes in the fixed federal student loan interest rates from one year to the next. For instance, for loans disbursed from July 2010 to June 2011, the fixed interest rate for federal subsidized undergraduate loans was 4.5 percent. But loans disbursed from July 2011 to June 2013, the interest rate for the same loans was 3.4 percent. That’s a big difference over the life of a student loan!
Timing isn’t as big a factor in private student loans, but it’s always best to shop around to find the lowest rates available to you. The biggest way timing can affect your private student loan interest rates is if your credit has recently gotten much better (or worse). If your credit score has risen in a year, you’re likely to get much better rates than you would have a year ago. Similarly, if your credit has tanked, your rates might be much higher than they were before.